May 7 (Bloomberg) -- Serbia’s opposition Progressive Party won a narrow victory in elections yesterday as leaders battled over whether the Balkan country’s future lies with the European Union or further east.
The Progressive Party of Tomislav Nikolic, who favors economic and political support from Russia, took 24 percent of the vote and the Democrats of President Boris Tadic, who won Serbia’s candidacy for European Union entry, had 22.09 percent, the Electoral Commission said, citing 97.6 percent of votes counted. The Socialist Party had 14.54 percent. The decision on who will build a new Cabinet will be made once Tadic and Nikolic face off in a May 20 presidential runoff.
As governments from Ireland to Italy fall in a wave of anger over austerity, the Serb election took place as French President Nicolas Sarkozy was ousted and Greece’s vote ended in a gridlock. Serbs are split between Tadic’s bid for the EU and Nikolic’s nationalist rhetoric about the nation’s claim on Kosovo two decades after Yugoslavia broke up and his rejection of cuts needed to keep fiscal policies in line with EU demands.
“The main surprise is the tight lead of the Progressives because everyone expected that lead to be more convincing,” said Goran Nikolic, an analyst at the Belgrade-based Institute for European Studies last night. “And it is surprising to see the success of the Socialists.”
The dinar traded at 111.9657 to the euro at 4:43 p.m. in Belgrade, and the BELEX15 index of the 15 most-actively traded stocks rose 0.2 percent to 495.73, according to data compiled by Bloomberg.
The results don't include votes from Serbians living in the breakaway province of Kosovo, which will not have any significant impact on the parliamentary makeup as only 35,000 people, or 32 percent of voters there, cast ballots, said Marko Blagojevic, the head of election monitor CeSid.
In a breakdown for seats in the 250-member parliament, the Progressive Party earned 73 seats, Tadic’s party has 67 seats and the Socialists have 44.
The past four years have coincided with the global economic and European debt crises, allowing some politicians to criticize the EU and reach for Serbia’s historical political ally, Russia, where Vladimir Putin was sworn in for his third term as president today.
The Progressive Party has promised to bring into a coalition the Democratic Party of Serbia, a nationalist-conservative party run by former Prime Minister Vojislav Kostunica, who has called for abandoning EU membership plans and forge tighter political, economic and investment ties to Russia, Belarus and Kazakhstan.
Economic, Monetary Weakness
That view gained traction among voters as the dinar lost 30 percent, unemployment rose 10 percentage points, public debt increased to 14.4 billion euros and the average take-home wage is now 360 euros ($476) per month during the past administration.
In a nation where fewer than one in four of the 7.2 million inhabitants have formal employment, job prospects, higher wages and the fight against corruption are likely to be a bigger factor for voters than future EU membership, said analysts including Milan Nikolic, the director of the Belgrade-based Center for Policy Studies.
Serbia became a candidate for EU membership on March 1 after fulfilling a series of conditions, including the capture and transfer of Radovan Karadzic, Ratko Mladic and Goran Hadzic, the three most-wanted war-crimes suspects from the civil wars that accompanied the breakup of the former Yugoslavia, to the Hague-based International Criminal Tribunal for the Former Yugoslavia.
In the presidential race, Tadic had 26.7 percent to Nikolic’s 25.5 percent, casting uncertainty for another two weeks about who will be the next head of state.
The Democratic Party’s “credibility has been battered by the economic downturn and undermined by popular perceptions of increased corruption under its rule,” Joan Hoey, a London-based analyst at the Economist Intelligence Unit, said in e-mailed comments before the vote. At the same time, the Progressives have “done little to project a positive alternative to the ruling coalition” with “little distinctive to say on domestic or foreign policies.”
The makeup of the new government may be in the hands of the Socialists, once led by strongman Slobodan Milosevic. Its current leader, Ivica Dacic, also ran for president.
The Socialists “are now in a position to dictate conditions,” said Belgrade University professor Djorjde Vukadinovic.
Whoever is able to forge a ruling coalition, there will be no quick fix to expanding unemployment, the main source of popular discontent after the jobless rate reached 24.4 percent at the end of 2011, said analysts including Milan Jovanovic, a professor at the Faculty of Political Science in Belgrade.
“We may easily end up with a government that doesn’t last long because of the seriousness of the economic problems that we are facing,” Jovanovic told reporters last night.
The government will need to mix a leaner budget with more public investment to jump-start the economy, which contracted by 1.3 percent in the first three months of the year, political analysts said.
‘Austerity Is Priority’
“Austerity is a priority and it should be combined with more public investments now that the private sector is on the verge of collapse,” said Ivan Nikolic, an analyst at the Belgrade-based Economics Institute. The government will need to initially turn to “major public works and big infrastructure projects” to halt a further rise in unemployment before creating new jobs.
The Cabinet emerging from yesterday’s polls will need to revise the budget and reduce the fiscal deficit to 4.25 percent of economic output to convince the International Monetary Fund of its commitment to maintaining macroeconomic stability. Measures to curb the gap will help the central bank stop spending foreign-currency reserves on supporting the dinar, which has weakened 10 percent on year to the lowest in a decade.
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